When making commercial transactions within the import/export of goods, concluding contracts with cross-border contractors, it is often necessary to establish the Incoterms Rules that will apply under a given contract. The most popular Incoterms Rules, and at the same time extremely different ones, are the DDP and EXW Rules, which can determine the moment when the VAT tax obligation arises at a different date.
At the outset, it should be noted that according to Article 19a of the Polish VAT Act, the tax obligation arises at the moment of the supply of goods. The above-mentioned rule is a general rule that also applies to the export of goods.
On the other hand, according to Article 7 sec. 1 of the Polish VAT Act, a supply of goods is considered to be the transfer of the right to dispose of goods as an owner. This is also of considerable importance for the export/import of goods, which is indicated, m.in, in the individual ruling of the Director of the National Tax Information of 24 April 2018 (file ref. no. 0112-KDIL1-3.4012.130.2018.1.KB): “At this point, it should be noted that the release of goods by the seller is associated with a significant effect of the sale of goods, consisting in, m.in, the transfer to the recipient of the benefits and burdens associated with the goods and the risk of accidental loss or damage goods. The decisive moment for the transfer to the recipient of the benefits and burdens associated with the goods and the risk of accidental loss or damage to the goods is, as a rule, the release of the goods. The performance of the supply referred to in Article 19a(1) of the Act therefore means the actual performance of the supply. If the parties have designated a different moment than the release of the goods for the transfer of benefits and burdens, then in case of doubt it is assumed that the same moment concerns the transfer of the risk of accidental loss or damage to the goods.”
On the other hand, the Incoterms themselves, if they have been established primarily in the field of support in concluding commercial agreements, they also affect the above-mentioned moment of transfer of ownership of goods, and thus they may affect the moment when the tax obligation arises, i.e. they may have effects under the Polish VAT Act.
Today’s article will discuss the two most popular Incoterms:
- DDP Delivered Duty Paid – the seller delivers the goods to the buyer when the goods are left at the buyer’s disposal, cleared in import, on arriving means of transport, ready for unloading at a designated destination or at an agreed point within that place, if such a point has been agreed. The seller bears all risks associated with the delivery of the goods to the designated destination or to an agreed point within that place. The moment of delivery and arrival at the destination are identical.
- EXW EX Works (from the plant) – the seller delivers the goods at the disposal of the buyer, but the place of delivery does not have to be the seller’s premises. It is recommended to accurately determine a specific point within the designated delivery location. In order for delivery to take place under this rule, the seller does not need to load the goods onto any receiving vehicle or clear the goods for export, if such clearance applies.
As we indicated at the beginning, these two Rules are extremely different in terms of the seller’s liability in the first place. The DDP rule means its maximum duties and responsibilities, which is the opposite of the EXW rules where they are minimized.
In other words, the above rules determine the moment of delivery, which is interpreted as the moment when:
- DDP – the goods will be delivered to the buyer’s warehouse;
- EXW – the buyer will pick up the goods from a previously agreed location.
On the other hand, the moment of delivery, as indicated at the beginning of the article, translates into the moment when the tax obligation arises, for example:
- DDP – the moment of delivery of the goods to the buyer’s warehouse;
- EXW – the moment of receipt of the goods from the seller.
In addition, it should be noted that while the Incotersm Rules are not obligatory, and thus the parties may contractually modify the terms of supply, if they are indicated as an element of contractual provisions, they should be observed and one should be aware that they affect the moment when the VAT liability arises.
To sum up, the Incoterms Rules affect the moment when the tax obligation arises. The DDP rule determines that this moment is the moment of delivery of the goods to the buyer’s warehouse (a later moment), while in the case of the EXW rule, this moment will be the moment of receipt of the goods from the seller (earlier moment).
